Android Phones Headed for Cheap Seats, Says Schmidt

Google's Eric Schmidt sees Android smartphones headed to the feature phone price point of $70. Should carriers and OEMs be concerned by diminishing hardware returns?

Google Executive Chairman Eric Schmidt excited the Mobile
World Congress audience last week when he discussed how Android
smartphones would be getting cheaper and cheaper in the next couple years.
Thanks to
Moore's Law, smartphones are becoming like feature phonescommodity products in
a commodity-driven world always looking for the next big thing. Schmidt sees
Android set prices coming down to the $100 to $150 range from $200 to $400 in
2013, and then even down to the $70 feature phone price point a year or two
after that.

The news
caught the attention of Ovum Research analyst Tony Cripps, who noted in a
research note Feb. 29:

"Schmidt's
expectation that Android smartphones will be available between $100-$150 by
next year already looks inevitable and will begin to redefine the handset
market as a whole. The eventual goal of seeing the price of Android devices
brought down into the $70 range also looks realistic to us with the advancement
of technology and huge economies of scale that are starting to drive the
Android economy."
This emerging
trend begs the question: Should the network operators and android OEMs, which
together make money on the hardware sales, push back against the $70 smartphone
trend that threatens to nibble at their bottom lines? No, said analysts.
"Nokia
Symbian is already shipping phones at this level," Gartner analyst Ken
Dulaney told eWEEK. "There will
always be a variety with differing features. As long as consumers will spend
$400 on Nike shoes, then there will be people who spend $200 on phones. And
they will market the high end ones because that is where the profit comes from,
just like in shoes."
But won't the
commoditization of components, just as with PCs, wither phone hardware margins?
Not according to Current Analysis analyst Avi Greengart.
"Nokia makes
good margins on its entry-level feature phones, so it is certainly possible to
make money there as that market slowly transitions to smartphones over
time," Greengart told eWEEK.
"Of
course, one way to ensure your margins stay high is not to enter markets unless
you can maintain high marginsthat has been Apple's approach. Apple is slowly
pushing down into lower price tiers, but is doing so at its own pace and is not
chasing market share or unit volumes if it can't get the margins it
wants."
Greengart
further argued that carriers should welcome broadening the smartphone market
because it allows them to push data plans to consumers who could not afford
smartphones at higher device price points.
Of course,
this is all great news for Google, which would just as soon have carriers give
handsets away for free so more of them get into the hands of consumers.
More
smartphones in the hands of consumers means more mobile ads served to those
consumers. Indeed, Piper Jaffray analyst Gene Munster already sees
Google's Android business booming to $4.5 billion in 2012, up 80 percent from
the 2011 total.
As Cripps
noted: Android's astonishing growth so far may well look modest in coming
years."